UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2009
--------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _____________
Commission file number 000-50340
RODOBO INTERNATIONAL, INC.
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 75-2980786
------------------------------ -------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
380 Chanjiang Road, Nangang District, Harbin, PRC 150001
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(Address of Principal Executive Offices) (Zip Code)
+86-0451-82260522
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [_] No [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 15,016,717 common shares outstanding
as of May 13, 2009.
Item 1. Financial Statements.
RODOBO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
2009 2008
(Unaudited) (Audited)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 904,360 $ 659,030
Accounts receivable - net of allowance for bad debts of
$66,602 and $66,921, respectively 2,136,392 1,143,328
Advances to employees 6,399 185,500
Other receivables -- 162,006
Inventories 1,125,606 991,536
Prepaid expenses 43,993 26,510
------------ ------------
Total current assets 4,216,750 3,167,910
------------ ------------
Property, plant and equipment, net:
Fixed assets, net of accumulated depreciation 885,307 812,079
Construction in progress -- 148,240
------------ ------------
885,307 960,319
------------ ------------
Other assets:
Loan to related parties 1,185,062 --
Interests receivable 13,964 --
Deposits on land and equipment 13,438,012 10,873,562
Intangible assets, net 676,800 717,978
------------ ------------
Total other assets 15,313,838 11,591,540
------------ ------------
Total assets $ 20,415,895 $ 15,719,769
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,376,328 $ 2,165,061
Other payable -- 171,286
Accrued expenses 571,756 924,580
Advance from customers -- 1,162,184
Due to related party -- 18,079
------------ ------------
Total current liabilities 1,948,084 4,441,189
------------ ------------
Shareholders' equity
Convertible preferred stock, $0.001 par value, 15,000,000
shares authorized 12,976,316 shares issued and outstanding
as of March 31, 2009 and September 30, 2008 12,976 12,976
Common stock, $0.001 par value, 1,604,278 shares authorized,
1,435,568 shares issued and outstanding
as of March 31, 2009 and September 30, 2008 1,436 1,436
Additional paid in capital 5,115,690 3,930,628
Additional paid in capital - warrants 971,788 971,788
Subscription receivable (50,000) (3,050,000)
Retained earnings 11,593,991 8,524,267
Accumulated other comprehensive income 821,930 887,484
------------ ------------
Total shareholders' equity 18,467,811 11,278,579
------------ ------------
Total liabilities and shareholders' equity $ 20,415,895 $ 15,719,769
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements
1
RODOBO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE SIX AND THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
Three Months Ended March 31 Six Months Ended March 31
2009 2008 2009 2008
------------ ------------ ------------ ------------
Net sales $ 6,303,017 $ 5,285,705 $ 15,163,842 $ 9,318,958
Cost of goods sold 4,026,269 2,905,871 8,383,386 5,720,074
------------ ------------ ------------ ------------
Gross profit 2,276,748 2,379,834 6,780,456 3,598,884
------------ ------------ ------------ ------------
Operating expenses:
Distribution expenses 1,105,652 1,059,918 3,225,004 1,610,320
General and administrative expenses 337,217 182,149 725,899 344,753
Depreciation and amortization expenses 90,259 11,453 132,709 19,219
------------ ------------ ------------ ------------
Total operating expenses 1,533,128 1,253,521 4,083,612 1,974,293
------------ ------------ ------------ ------------
Operating income 743,620 1,126,314 2,696,844 1,624,592
Subsidy income 438,730 -- 438,730 94,187
Other (expenses) income 14,768 7,465 (65,850) 11,356
------------ ------------ ------------ ------------
Income before income taxes 1,197,119 1,133,779 3,069,724 1,730,135
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income $ 1,197,119 $ 1,133,779 $ 3,069,724 $ 1,730,135
Other comprehensive income:
Foreign currency translation adjustment (25,774) 210,569 (65,554) 320,874
------------ ------------ ------------ ------------
Comprehensive income $ 1,171,345 $ 1,344,348 $ 3,004,170 $ 2,051,009
============ ============ ============ ============
Basic and diluted net income per share $ 0.83 $ 1.16 $ 2.14 $ 1.78
============ ============ ============ ============
Basic and diluted weighted average shares outstanding 1,435,568 973,685 1,435,568 973,685
============ ============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements
2
RODOBO INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
Six Months Ended March 31
2009 2008
----------- -----------
Cash flows from operating activities
Net income $ 3,069,724 $ 1,730,135
Adjustments to reconcile net income to operating activities
Depreciation and amortization 132,709 19,219
Changes in assets and liabilities:
(Increase) decrease in -
Accounts receivable, advance to employees and other
receivables (661,082) (681,994)
Inventories (140,326) (670,383)
Prepaid expenses (17,642) 51,645
Advances to suppliers -- (11,764)
Interests receivable (13,955) --
Increase (decrease) in -
Accounts payable and other payable (944,476) 164,838
Accrued expenses (347,153) (674,422)
Advance from customers (1,154,023) (79,673)
----------- -----------
Net cash used in operating activities (76,224) (152,399)
----------- -----------
Cash flows from investing activities
Purchase of fixed assets (27,325) (81,955)
Cash used for construction in progress -- (97,198)
Investment advances -- (791,375)
Loan to related parties (1,170,621)
Deposits on land and equipment (2,632,380) --
----------- -----------
Net cash used in investing activities (3,830,326) (970,528)
----------- -----------
Cash flows from financing activities
Proceeds from subscription receivable 3,000,000 --
Proceeds from capital contribution 1,170,621 --
(Repayment to) proceeds from related party loan (14,689) 1,132,389
----------- -----------
Net cash provided by financing activities 4,155,932 1,132,389
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (4,051) 310,406
----------- -----------
Net increase in cash and cash equivalents 245,330 319,867
Cash and cash equivalents, beginning of period 659,030 33,302
----------- -----------
Cash and cash equivalents, end of period $ 904,360 $ 353,169
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 4,878 $ --
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements
3
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
1. ORGANIZATION AND BASIS OF PRESENTATION
Rodobo International, Inc. (the "Company"), through its subsidiary, Harbin
Mega Profit Management Consulting Co., Ltd. ("Harbin Mega Profit"), a
wholly foreign-owned entity incorporated under the laws of the People's
Republic of China ("PRC" or "China"), and its Variable Interest Entity
("VIE"), Harbin Rodobo Dairy Co., Ltd. ("Harbin Rodobo"), a corporation
established on January 4, 2002 also under the laws of the PRC, is engaged
in the production, processing, distribution and development of powdered
milk products in the PRC for infants, children, pregnant women and other
adults under the brand name "Rodobo".
On April 1, 2008, another separate entity, Qinggang Mega Profit Agriculture
Co., Ltd. ("Mega Profit Agriculture"), was incorporated under the laws of
the PRC, originally as a wholly-owned subsidiary of Harbin Mega Profit to
start a dairy farm. Subsequently, for the purpose of obtaining government
tax incentives in the wake of the powdered-milk contamination scandal in
China, ownership of Mega Profit Agriculture was transferred to the
individual shareholders. Mega Profit Agriculture is no longer a subsidiary
of Harbin Mega Profit.
On January 1, 2009, Harbin Mega Profit entered into certain exclusive
agreements with Mega Profit Agriculture and its shareholders. Pursuant to
these agreements, Harbin Mega Profit shall provide exclusive consulting and
other general business operation services to Mega Profit Agriculture as it
does to Harbin Rodobo, in return for a consulting services fee which is
equal to Mega Profit Agriculture's revenue. In addition, Mega Profit
Agriculture's shareholders have pledged their equity interests in Mega
Profit Agriculture to Harbin Mega Profit, irrevocably granted Harbin Mega
Profit an exclusive option to purchase, to the extent permitted under PRC
law, all or part of the equity interests in Mega Profit Agriculture and
agreed to entrust all the rights to exercise their voting power to the
person(s) appointed by Harbin Mega Profit. Through these contractual
arrangements, Harbin Mega Profit has the ability to substantially influence
Mega Profit Agriculture's daily operations and financial affairs, appoint
its senior executives and approve all matters requiring stockholders'
approval. As a result of these contractual arrangements, which obligate
Harbin Mega Profit to absorb a majority of the risk of loss from Mega
Profit Agriculture's activities and enable Harbin Mega Profit to receive a
majority of its expected residual returns, Harbin Mega Profit accounts for
Mega Profit Agriculture as a VIE under Financial Accounting Standards Board
("FASB") Interpretation No. 46R, "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51". Accordingly, Harbin Mega Profit
consolidates Mega Profit Agriculture's results, assets and liabilities (as
it does with those of its other VIE, Harbin Rodobo).
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six months ended March 31, 2009 and 2008 are not necessarily indicative
of the results that may be expected for the full years. The information
included in this Form 10-Q should be read in conjunction with Management's
Discussion and Analysis and the financial statements and notes to thereto
included in the Company's Form 10-K for the year ended September 30, 2008.
4
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the financial statements of the Company, its wholly-owned subsidiary,
Harbin Mega Profit and its VIEs, Mega Profit Agriculture and Harbin Rodobo.
All significant inter-company transactions and balances between the
Company, its subsidiaries and VIEs are eliminated upon consolidation.
USE OF ESTIMATES - The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - The Company considers cash and cash equivalents
to include cash on hand and deposits with banks with an original maturity
of three months or less.
ACCOUNTS RECEIVABLE - The Company's policy is to maintain reserves for
potential credit losses on accounts receivable. Provision is made against
accounts receivable to the extent that they are considered to be doubtful.
Accounts receivable in the balance sheet is stated net of such provision.
INVENTORIES - Inventories comprise raw materials, work in progress,
finished goods and packing materials and are stated at the lower of cost or
market value. Cost is calculated using the First In First Out method and
includes all costs to acquire and any overhead costs incurred in bringing
the inventories to their present location and condition. Overhead costs
included in finished goods inventory include direct labor cost and other
costs directly applicable to the manufacturing process, including
utilities, supplies, repairs and maintenances, and depreciation expense.
Market value represents the estimated selling price in the ordinary course
of business less the estimated costs necessary to complete the sale.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. Expenditures for major additions and improvements are capitalized
and minor replacements, maintenance, and repairs are charged to expense as
incurred. When property, plant and equipment are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the results of
operations for the respective period. Depreciation is provided over the
estimated useful lives of the related assets on a straight-line basis. The
estimated useful lives for significant property, plant and equipment
categories are as follows:
Leasehold improvement 5.5 years
Machinery, equipment and automobiles 5 years
5
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY, PLANT AND EQUIPMENT (Continued) - Construction in progress
represents the direct costs of construction or acquisition incurred. Upon
completion and readiness for use of the assets, capitalization of these
costs ceases and the cost of construction in progress is transferred to
fixed assets. No depreciation is provided until the project is completed
and the assets are ready for intended use.
The Company periodically reviews the carrying value of long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets". When
estimated future cash flows generated by those assets are less than the
carrying amounts of the assets, the Company recognizes an impairment loss
equal to the amount by which the carrying value exceeds the fair value of
assets. Based on its review, the Company believes that there were no
impairments of its long-lived assets as of March 31, 2009.
REVENUE RECOGNITION - The Company's revenue recognition policies are in
compliance with SEC Staff Accounting Bulletin 104 "Revenue Recognition,
corrected copy". Sales revenue is recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations
of the Company exist and collectability is reasonably assured. Revenues
consist of the invoice value of the sale of goods net of sales returns and
allowances.
ADVANCE FROM CUSTOMERS - Revenue from the sale of goods or services is
recognized when goods are delivered. Receipts in advance for goods to be
delivered in the subsequent year are carried forward as deferred revenue.
ADVERTISING COSTS - Advertising costs represent advertising expenses and
promotion incentives provided to distributors and are charged to operations
when incurred. Advertising expenses totaled $222,447 and $0 for the three
months ended March 31, 2009 and 2008, respectively, and totaled $487,350
and $12,110 for the six months ended March 31, 2009 and 2008, respectively.
EMPLOYEE BENEFIT COSTS - Mandatory contributions are made to the Chinese
Government's health, retirement benefit and unemployment schemes at the
statutory rates in force during the period, based on gross salary payments.
The cost of these payments is charged to the statement of income in the
same period as the related salary cost.
EARNINGS PER SHARE - The Company computes earnings per share ("EPS") in
accordance with SFAS No. 128, "Earnings per Share" ("SFAS No. 128"), and
SEC Staff Accounting Bulletin No. 98. SFAS No. 128 requires companies with
complex capital structures to present basic and diluted EPS. Basic EPS is
measured as net income divided by the weighted average common shares
outstanding for the period. Diluted EPS is similar to basic EPS but
presents the dilutive effect on a per share basis of potential common
shares (e.g., convertible securities, options and warrants) as if they had
been converted at the beginning of the periods presented, or issuance date,
if later. Potential common shares that have an anti-dilutive effect (i.e.,
those that increase income per share or decrease loss per share) are
excluded from the calculation of diluted EPS.
6
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FOREIGN CURRENCY TRANSLATION - The Company's principal country of
operations is in the PRC. The financial position and results of operations
of the Company are determined using the local currency, Renminbi ("RMB"),
as the functional currency. The results of operations and the statement of
cash flows denominated in foreign currency are translated at the average
rate of exchange during the reporting period. Assets and liabilities
denominated in foreign currencies at the balance sheet date are translated
at the applicable rates of exchange in effect at that date. The equity
denominated in the functional currency is translated at the historical rate
of exchange at the time of capital contribution. Because cash flows are
translated based on the average translation rate, amounts related to assets
and liabilities reported on the statement of cash flows will not
necessarily agree with changes in the corresponding balances on the balance
sheet. Translation adjustments arising from the use of different exchange
rates from period to period are included as a component of stockholders'
equity as "Accumulated Other Comprehensive Income". Historically the local
currency's exchange rate had been tied to the US Dollar at a rate of
approximately 8.28 RMB per US Dollar. Effective July 21, 2005 the RMB was
revalued to an effective exchange rate of approximately 8.11 RMB per US
Dollar. Subsequent to the revaluation the RMB has been allowed to float
within a specified range. As of March 31, 2009 and September 30, 2008, the
exchange rate was 6.83 and 6.79 RMB per US Dollar, respectively.
INCOME TAXES - The Company utilizes SFAS No. 109, "Accounting for Income
Taxes", which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financials statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each period end based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to realized. There are no deferred tax amounts at March 31, 2009
and September 30, 2008, respectively.
Harbin Rodobo is entitled to a tax holiday of five years for full
Enterprise Income Tax exemption in China. The preferential tax treatment
commenced in 2005 and will expire on December 31, 2009. The estimated tax
savings for the three months ended March 31, 2009 and 2008 amounted to
$295,791 and $283,445, respectively, and amounted to $763,942 and $480,242
for the six months ended March 31, 2009 and 2008, respectively. The net
effect on basic earnings per share had the income tax been applied would
decrease earnings per share from $0.83 to $0.63 for the three months ended
March 31, 2009, from $1.16 to $0.87 for the three months ended March 31,
2008, from $2.14 to $1.60 for the six months ended March 31, 2009 and $1.78
to $1.28 for the six months ended March 31, 2008.
FAIR VALUE OF FINANCIAL STATEMENTS - The carrying amounts of certain
financial instruments, including cash, accounts receivable, other
receivables, accounts payable, accrued expenses, advances from customers,
and other payables approximate their fair values as of March 31, 2009 and
September 30, 2008 due to the relatively short-term nature of these
instruments.
7
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONCENTRATIONS OF BUSINESS AND CREDIT RISK - The Company maintains certain
bank accounts in the PRC which are not protected by FDIC insurance or other
insurance. The Company's operations are carried out in the PRC.
Accordingly, the Company's business, financial condition and results of
operations may be influenced by the political, economic and legal
environments in the PRC and the general state of the PRC's economy.
The Company's operations in the PRC are subject to specific considerations
and significant risks not typically associated with companies in the North
America and Western Europe. The Company's operating results may be
adversely affected by changes in governmental policies with respect to laws
and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things.
NEW ACCOUNTING PRONOUNCEMENTS - In December 2007, the FASB issued SFAS No.
141(R), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) requires the
acquiring entity in a business combination to recognize all assets acquired
and liabilities assumed in the transaction; establishes the
acquisition-date fair value as the measurement objective for all assets
acquired and liabilities assumed; and requires the acquirer to disclose all
information needed by investors to understand the nature and financial
effect of the business combination. SFAS 141 (R) is effective for fiscal
years beginning on or after December 15, 2008, which is the Company's
fiscal year 2010. SFAS 141(R) does not currently have any material impact
on the Company's financial statements.
In December 2007, the FASB also issued SFAS No. 160, "Non-controlling
Interests in Consolidated Financial Statements - an amendment of Accounting
Research Bulletin No. 51" ("SFAS 160"). This statement requires an entity
to classify noncontrolling interests in subsidiaries as a separate
component of equity. Additionally, transactions between an entity and
noncontrolling interests are required to be treated as equity transactions.
SFAS 160 is effective for fiscal years beginning on or after December 15,
2008, which is the Company's fiscal year 2010. SFAS 160 does not currently
have any material impact on the Company's financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS 161"). This statement requires
enhanced disclosures about (i) how and why companies use derivative
instruments, (ii) how companies account for derivative instruments and
related hedged items under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", and (iii) how derivative instruments
and related hedged items affect their financial results. SFAS 161 is
effective for fiscal years beginning on or after November 15, 2008, which
is the Company's fiscal year 2010. SFAS 161 does not currently have any
material impact on the Company's financial statements.
8
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
3. ACCOUNTS RECEIVABLE
The Company's accounts receivable as of March 31, 2009 and September 30,
2008 are summarized as follows:
March 31, September 30,
2009 2008
---------- ------------
Accounts receivable $2,202,994 $ 1,210,249
Less: Allowance for doubtful accounts 66,602 66,921
---------- ------------
Total net accounts receivable $2,136,392 $ 1,143,328
========== ============
The activity in the allowance for doubtful accounts as of March 31, 2009
and September 30, 2008 is summarized as follows:
March 31, September 30,
2009 2008
Six months Yearly
----------- -----------
Beginning balance $ 66,921 $ 60,643
(Deductions) additions during the period (319) 6,278
----------- -----------
Ending balance $ 66,602 $ 66,921
=========== ===========
4. INVENTORIES
Inventories consist of the following as of March 31, 2009 and September 30,
2008:
March 31, September 30,
2009 2008
---------- ----------
Raw materials $ 318,173 $ 302,741
Work-in-progress 715,032 512,806
Finished goods 20,067 53,144
Packing materials 72,334 122,844
---------- ----------
Total inventories $1,125,606 $ 991,536
========== ==========
9
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
5. FIXED ASSETS
Fixed assets consist of the following as of March 31, 2009 and September
30, 2008:
March 31, September 30,
2009 2008
----------- -----------
Building improvement $ 507,260 $ 411,901
Plant and machinery 598,144 522,494
Motor vehicles 9,572 21,217
Computers and equipment 21,080 9,003
----------- -----------
1,136,057 967,615
Less: accumulated depreciation (250,750) (155,536)
----------- -----------
Total fixed assets, net 885,307 812,079
Construction in progress -- 148,240
----------- -----------
$ 885,307 $ 960,319
=========== ===========
Depreciation expense was $71,931 and $11,453 for the three months ended
March 31, 2009 and 2008, respectively, and totaled $96,148 and $19,219 for
the six months ended March 31, 2009 and 2008, respectively.
6. LOANS TO RELATED PARTIES
In January 2009, the Company loaned RMB 8,100,000 (approximately
US$1,185,062) to its principal shareholders ("Borrowers"). Subsequently,
the Borrowers invested the funds borrowed from the Company in Mega Profit
Agriculture. The Borrowers pledged to the Company their interest in Mega
Profit Agriculture. The transaction was made in order for the Company to
obtain government tax incentives in the wake of the powered-milk
contamination scandal in China, The loans bear an interest rate of 5% per
annum. Both the principal and interest are due on January 4, 2011. The
Company accrued a total interest of $13,964 as of March 31, 2009.
7. DEPOSITS ON LAND AND EQUIPMENT
As of March 31, 2009, Mega Profit Agriculture made a total down payment of
RMB 84,830,400 (approximately US$12,413,666) to acquire land, buildings and
equipment from various parties. The remaining contract amount totals RMB
63,805,485 (approximately US$9,336,983). As of March 31, 2009, Harbin
Rodobo also made down payment of $1,024,346 to purchase certain equipment.
10
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
8. INTANGIBLE ASSETS
The Company entered into a "Technology Transfer Agreement" with China
Nutrition Society ("CNS") to obtain a powdered milk product formula
specifically developed for the middle aged and seniors with a total fee of
RMB 5,000,000 (approximately $731,676). The Company has the exclusive right
to use the formula for 10 years starting July 1, 2008. As of March 31,
2009, the Company has made an installment payment to CNS of RMB 2,000,000
(approximately $292,670). Intangible assets are amortized on a straight
line basis over 10 years. Amortization expense was $18,328 for the three
months ended March 31, 2009 and $36,561 for the six months ended March 31,
2009.
9. SHAREHOLDER'S EQUITY
Upon its inception, Mega Profit had a capital subscription receivable with
an amount of $50,000. On January 11, 2008, Mega Profit issued 14,500 shares
of common stock to an investor with proceeds of $1,450,000.
In addition, as a result of the consolidation of Mega Profit Agriculture,
the Company's additional paid-in capital account was increased by RMB
8,000,000 (approximately US$1,170,621). That additional capital was
contributed by Mega Profit Agriculture's shareholders to facilitate the
purchase of the land and equipment for the new dairy farm.
Prior to the Company's reverse merger with Mega Profit Limited ("Mega
Profit") consummated on September 30, 2008 (the "Merger"), the Company had
26,980,609 shares of common stock issued and outstanding. In connection
with the Merger, the Company cancelled 10,293,359 shares of common stock
issued to former employees and shareholders of the Company and conducted a
reverse stock split of approximately 37.4 for 1 on the remaining
outstanding shares of common stock, which resulted in 461,883 shares
outstanding post the reverse stock split. In consideration of the Merger,
the Company issued to the shareholders of Mega Profit (the "Sellers") and
their designees approximately 37,000,000 shares of common stock prior to
and approximately 973,685 shares post the reverse stock split.
Additionally, the Company issued to Sellers and their designees 12,976,316
shares of convertible preferred stock convertible into 12,976,316 shares of
the common stock of the Company. As of March 31, 2009, there were 1,435,568
shares of common stock and 12,976,316 shares of convertible preferred stock
issued and outstanding.
On September 30, 2008, prior to and in conjunction with the Merger, Mega
Profit entered into a Securities Purchase Agreement with an institutional
investor for $3,000,000. As a result, upon the completion of the Merger,
the institutional investor, together with other owners of Mega Profit,
received preferred stock convertible into common stock upon the increase of
the authorized share capital of the Company. In addition, Mega Profit also
issued to the institutional investor warrants to purchase 818,182 shares of
the common stock of Mega Profit at an exercise price of $1.50 per share and
warrants to purchase 545,455 shares of the common stock of Mega Profit at
an exercise price of $1.75 per share. No separate consideration was paid
for such warrants. The Warrants, which were assumed by the Company upon the
Merger, expire in four years.
11
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
9. SHAREHOLDER'S EQUITY (Continued)
The warrants meet the conditions for equity classification pursuant to SFAS
133 "Accounting for Derivatives" and EITF 00-19 "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's
Own Stock." Therefore, these warrants were classified as equity and
included in Additional Paid-in Capital. The fair value of the warrants was
calculated using the Black-Scholes options pricing model using the
following assumptions: volatility 100%, risk free interest rate 3.99% [no
dividend yield] and expected term of four years.
Following is a summary of the status of warrants activities as of March 31,
2009:
Outstanding Outstanding
Exercise September 30, Expired or March 31, Expiration
Price 2008 Granted Exercised 2009 Date
- ------------- ------------- ------- ---------- ----------- -----------------------
$ 1.50 818,182 - - 818,182 September 30, 2012
$ 1.75 545,455 - - 545,455 September 30, 2012
10. EARNINGS PER SHARE
The Company had 12,976,316 shares of convertible preferred stock as of
March 31, 2009. These shares are not included in diluted weighted average
shares calculation. Pursuant to the Merger agreement, no convertible
preferred shares may be converted to common stock until the authorized
common stock is increased to allow for such conversions. However, following
the increase in the Company's authorized share capital (as described in
Note 13, below), these shares of preferred stock have been converted into
common stock on May 12, 2009.
The Company has outstanding warrants to acquire 1,363,637 shares of common
stock. As of March 31, 2009, no warrants can be exercised as the authorized
common stock shares have not been increased to allow for the exercise.
Therefore, these shares are not included in diluted weighted average shares
calculation. However, following the increase in the Company's authorized
share capital (as described in Note 13, below), these warrants may now be
exercised.
In September 2008, the Company entered a reverse merger transaction. The
Company computes the weighted-average number of common shares outstanding
in accordance with SFAS 141(R). SFAS 141(R) states that in calculating the
weighted average shares when a reverse merger took place in the middle of
the year, the number of common shares outstanding from the beginning of
that period to the acquisition date shall be computed on the basis of the
weighted-average number of common shares of the legal acquiree (accounting
acquirer) outstanding during the period multiplied by the exchange ratio
established in the merger agreement. The number of common shares
outstanding from the acquisition date to the end of that period shall be
the actual number of common shares of the legal acquirer (the accounting
acquiree) outstanding during that period.
12
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
11. MAJOR CUSTOMERS
The following table presents sales from major customers with individual
sales over 10% of total net revenue for the three months ended March 31,
2009 and 2008 and the six months ended March 31, 2009 and 2008:
Three Months Ended March 31, Six Months Ended March 31,
---------------------------------------- ---------------------------------------
2009 2008 2009 2008
------------------- ------------------- ------------------ -------------------
% of % of % of % of
Sales Sales Sales Sales Sales sales Sales sales
----------- --- ---------- --- ---------- --- ----------- ---
Shandong Linqu $ 1,754,920 28% $ 136,077 3% $1,754,920 12% $ 499,342 5%
Chengdu Luoling $ 1,404,212 22% $1,780,047 34% $3,796,070 25% $ 2,686,229 29%
Jiamusi Baijiade $ 658,123 10% $ 90,313 2% $ 782,548 5% $ 204,817 2%
Jiamusi Duoduo $ 179,474 3% $ 261,573 5% $1,612,333 11% $ 602,395 6%
Jiangxi Meilu -- 0% $ 906,487 17% -- 0% $ 1,749,495 19%
----------- --- ---------- --- ---------- --- ----------- ---
Total $ 3,996,729 63% $3,174,497 60% $7,945,871 52% $ 5,742,277 62%
=========== ==== ========== === ========== === =========== ===
At March 31, 2009, the total receivable balance due from these customers
was $1,649,174. At March 31, 2008, the total receivable balance due from
these customers was $1,114,134.
12. COMMITEMENTS AND CONTINGENCIES
On July 1, 2004, the Company entered into a lease agreement with
Heilongjiang Jinniu Dairy Co., Ltd. ("Jinniu") to lease its manufacturing
facilities in Qinggang, Heilongjiang. Under the agreement, the Company is
obligated to pay RMB1,000,000 (approximately US$146,335) per year, payable
in two installments each year for six years from July 5, 2004 to July 5,
2010.
On April 1, 2005 and April 1, 2006, the Company and Jinniu amended the
lease agreement whereby the lease term was extended to July 6, 2030 and
effective July 5, 2010, the annual rent payment will be reduced to RMB
600,000 (approximately US$87,801), payable in two installments each year.
Under the amended agreement, the Company is also required to make a minimum
RMB 400,000 (approximately US$58,534) of annual improvements or betterment
to the leased facility when the new lease term becomes effective.
As of March 31, 2009, Mega Profit Agriculture made a total down payment of
RMB 84,830,400 (approximately US$12,413,666) to acquire land, buildings and
equipment under agreements with various parties. The remaining contract
amount totals RMB 63,805,485 (approximately US$9,336,983).
13
RODOBO INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008
13. SUBSEQUENT EVENT
On April 2, 2009, the Company increased its authorized common stock, par
value $0.001, from 1,604,278 shares to 200,000,000 shares. As a result, the
12,976,316 shares of convertible preferred stock have been converted to
common stock and the Company's outstanding warrants to acquire 1,363,637
shares of common stock can now be exercised. The following table sets forth
the effect to earnings per share if the common stock issuable on conversion
of the convertible preferred stock and the exercise of the warrants is
included in the diluted weighted average shares calculation:
For the Three Months For the Six Months
Ended March 31, Ended March 31,
2009 2008 2009 2008
----------- ----------- ----------- -----------
Basic earning per share
Net Income $ 1,197,119 $ 1,133,779 $ 3,069,724 $ 1,730,135
Weighted average number of
common shares outstanding-Basic 1,435,568 973,685 1,435,568 973,685
=========== =========== =========== ===========
Earnings per share-Basic $ 0.83 $ 1.16 $ 2.14 $ 1.78
=========== =========== =========== ===========
Diluted earnings per share
Net Income $ 1,197,119 $ 1,133,779 $ 3,069,724 $ 1,730,135
Weighted average number of
common shares outstanding-Basic 1,435,568 973,685 1,435,568 973,685
Effect of diluted convertible
preferred stock 12,976,316 12,976,316 12,976,316 12,976,316
Effect of diluted warrants 1,363,637 1,363,637 1,363,637 1,363,637
----------- ----------- ----------- -----------
Weighted average number of
common shares outstanding-Diluted 15,775,521 15,313,638 15,775,521 15,313,638
Earnings per share-Diluted $ 0.08 $ 0.07 $ 0.19 $ 0.11
=========== =========== =========== ===========
As a result of the increase of authorized shares of common stock, on May
12, 2009, 12,976,316 shares of convertible preferred stock have been
converted into 12,976,316 shares of common stock. In addition, the Company
issued 604,833 shares of the Company's common stock, to certain former note
holders of the shell company based on the agreements signed prior to the
Merger. As of May 12, 2009, there were 15,016,717 shares of common stock
issued and outstanding and no outstanding preferred stock.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward - Looking Statements
- ----------------------------
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are "forward-looking statements." Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "believes," "intends," "plan" "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, and these and other similar expressions are intended
to identify forward-looking statements. We remind readers that forward-looking
statements are merely predictions and therefore inherently subject to
uncertainties and other factors and involve known and unknown risks that could
cause the actual results, performance, levels of activity, our achievements or
industry results to be materially different from any future results,
performance, levels of activity, our achievements or industry results expressed
or implied by such forward-looking statements. Such forward-looking statements
appear in Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as elsewhere in this Quarterly Report and
include statements regarding our outlook for the coming months and information
with respect to any other plans and strategies for our business. The factors
discussed herein and expressed from time to time in our filings with the
Securities and Exchange Commission ("SEC") could cause actual results and
developments to be materially different from those expressed in or implied by
such forward-looking statements. Except as required by law, we undertake no
obligation to release publicly the result of any revision to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Further information on potential uncertainties and other factors that could
affect our business is described in Part I, Item 1A, "Risk Factors" of our
Annual Report on Form 10-K for the fiscal year ended September 30, 2008. Readers
are also urged to carefully review and consider the various disclosures we have
made in that Annual Report.
Our financial statements are stated in thousands of United States Dollars (US$)
and are prepared in accordance with United States Generally Accepted Accounting
Principles.
In this quarterly report, unless otherwise specified, all dollar amounts are
expressed in United States dollars and all references to "common shares" refer
to the common shares in our capital stock. References to "yuan", "renminbi" or
"RMB" are to the Chinese yuan, which is also known as the renminbi.
As used in this quarterly report, the terms "we", "us", "our", and "Rodobo" mean
Rodobo International, Inc. and its wholly owned subsidiaries, unless otherwise
indicated or as otherwise required by the context.
Overview
We are one of the largest non-state-owned dairy companies in China, ranking in
the top 10% of the industry. Our industry niche is the dairy-based nutritional
products market. Our operations include production, marketing, research and
development, packaging and the management of raw milk resources. Our target
market is comprised of infants, children, pregnant women, nursing mothers and
other adults. Our revenues are derived solely from sales of our products.
15
On September 30, 2008, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") among its wholly owned acquisition subsidiary, Rodobo
International, Inc., a Nevada corporation, Mega Profit Limited ("Mega") and
shareholders of Mega's. Pursuant to the Merger Agreement, Navstar Media
Holdings, Inc. acquired 100% ownership interest in Mega, which owned 100% of
Harbin Rodobo Dairy Co., Ltd. ("Harbin Rodobo"). At the closing, the Company
acquired all of the issued and outstanding capital stock of Mega from Mega's
shareholders in exchange for shares of common stock and shares of convertible
preferred stock, which upon conversion of the preferred stock into common stock
equal approximatley 93% of the issued and outstanding shares of common stock of
the Company (the "Merger"). Concurrently with the Merger, the Company changed
its name to "Rodobo International, Inc." pursuant to Chapter 92A the Revised
Nevada Statutes.
In connection with the Merger, 10,293,359 shares of common stock issued to
former employees of Rodobo and shareholders of prior subsidiaries were
cancelled. Per agreements with certain convertible note holders holding
collectively $1,000,000 original face value of the convertible notes ("Notes"),
all Notes have been suspended and on May 12, 2009 have been converted into
approximately 452,830 shares of our common stock along with a conversion of an
additional pre Merger bridge loan note to 152,003 shares of our common stock and
the conversion of the our shares of convertible preferred stock, as described
below.
Effective on November 12, 2008, we effected a reverse stock split of 37.4 to 1
and effective on April 2, 2009 our authorized share capital has been increased
from 16,604,278 shares, consisting of 1,604,278 shares of common stock, par
value $0.001 and 15,000,000 shares of preferred stock, par value $0.001, to
230,000,000 authorized capital, consisting of 200,000,000 shares of common stock
par value $0.0001, and 30,000,000 shares of preferred stock, par value $0.0001.
As a result of the increase, we issued on May 12, 2009 a total of 13,581,149
shares common stock to our convertible preferred stock holders and convertible
note holders.
Results of Operations
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
The following table sets forth for the periods indicated the statement of
operations and each category as a percentage of net sales.
16
Three Months Ended March 31,
-------------------------------------------
2009 % of 2008 % of % of
sales sales change
----------- ----- --------- ----- -----
Net sales $ 6,303,017 100.0% 5,285,705 100.0% 19.2%
Cost of goods sold 4,026,269 63.9% 2,905,871 55.0% 38.6%
----------- ---------
Gross profit 2,276,748 36.1% 2,379,834 45.0% -4.3%
----------- ---------
Operating expenses:
Distribution expenses 1,105,652 17.5% 1,059,918 20.1% 4.3%
General and administrative expenses 337,217 5.4% 182,149 3.4% 85.1%
Depreciation and amortization expenses 90,259 1.4% 11,453 0.2% 688.1%
----------- ---------
Total operating expenses 1,533,128 24.3% 1,253,521 23.7% 22.3%
----------- ---------
Operating income 743,620 11.8% 1,126,314 21.3% -34.0%
Subsidy income 438,730 7.0% -- 0.0% n/a
Other income (expenses) 14,768 0.2% 7,465 0.1% 97.8%
----------- ---------
Income before income taxes 1,197,119 19.0% 1,133,779 21.4% 5.6%
Provision for income taxes -- 0.0% -- 0.0% n/a
Net income 1,197,119 19.0% 1,133,779 21.4% 5.6%
----------- ---------
Other comprehensive income:
Foreign currency translation
adjustment (25,774) -0.4% 210,569 4.0% -112.2%
----------- ---------
Comprehensive income $ 1,171,345 18.6% $ 1,344,348 25.4% -12.9%
=========== ===========
Net Sales:
Net sales for the three months ended March 31, 2009 were $6.3 million, an
increase of approximately $1.0 million or 19.2% compared to net sales for the
three months ended March 31, 2008. This increase was primarily driven by volume
growth, with the average selling price remaining flat over both periods. We
continued our efforts to develop distribution networks and expand the market
areas in the six provinces in which we currently sell products. The increase was
also attributed to the launch of a new product series called Healthy Elderly in
October 2008. Sales for Healthy Elderly were approximately $1.1 million in the
three months ended March 31, 2009.
17
Gross Profit:
Our gross profit decreased approximately $0.1 million for the three months ended
March 31, 2009, down 4.3% compared to the gross profit for the three months
ended March 31, 2008. The overall gross profit margin had deteriorated from
45.0% in 2008 to 36.1% in 2009.
The increase in the costs of goods sold and the deterioration of our gross
profit margin was mainly driven by different product mix over these periods. Our
Whole Milk Powder Formula product line historically had a relatively lower gross
margin (11-16%) than other product lines. Sales from Whole Milk Powder Formula
were 30.5% of total sales in the three months ended March 31, 2009 compared to
27.0% in the three months ended March 31, 2008. Additionally, gross margin for
Whole Milk Powder Formula decreased in 2009 compared to 2008 due to a 23.7%
increase in the cost of its main raw material (raw milk). Our Baby/Infant
Formula product line historically had a relatively higher gross margin (62-66%).
Sales from Baby/Infant Formula were 48.7% of total sales in the three months
ended March 31, 2009 compared to 60.8% in the three months ended March 31, 2008.
Operating expenses:
Operating expenses for the three months ended March 31, 2009 were $1.5 million,
an increase of approximately $0.3 million or 22.3% compared to the three months
ended March 31, 2008. Operating expenses as a percentage of net sales increased
from 23.7% in 2008 to 24.3% in 2009.
Distribution expenses remained relatively flat at $1.1 million for both the
three months ended March 31, 2008 and the three months ended March 31, 2008.
General and administrative expenses increased by $0.16 million, or approximately
85.1%, from $0.18 million for the three months ended March 31, 2008 to $0.34
million for the three months ended March 31, 2009. The increase was primarily
due to $0.09 million of incremental expenses incurred by our subsidiaries, Mega,
Harbin Mega Profit Management Consulting Co., Ltd. and Qinggang Mega Profit
Agriculture Co., Ltd. ("Mega Agriculture"). The increase was also attributed to
an increase of $0.08 million in advertising costs, an increase of $0.01 million
in rent due to the new Beijing sales office, and an increase of $0.01 million in
professional fees related to being a public company in the U.S., partially
offset by a decrease of $0.03 million in office expenses and a decrease of $0.01
million in freight.
Depreciation and amortization expenses increased by $0.08 million from $0.01
million in the three months ended March 31, 2008 to $0.09 million in the three
months ended March 31, 2009. Depreciation expenses increased by $0.06 million,
primarily due to building improvements at our Qinggang production facilities and
the purchase of equipment to support our sales growth. In the three months ended
March 31, 2009, there were approximately $0.02 million of amortization expenses
associated with intangible assets, consisting of the right to use a milk powder
product formula developed for the middle-aged and elderly by China Nutrition
Society which we acquired in fiscal year 2008. There were no amortization
expenses in the three months ended March 31, 2008.
Overall, due to the deterioration in gross profit and the increase in operating
expenses, we had a 34.0% decrease (approximately $0.4 million) in operating
income in the three months ended March 31, 2009 compared with the three months
ended March 31, 2008.
Net Income:
Despite an increase of $1.0 million in sales, net income remained relatively
flat at $1.2 million for the three months ended March 31, 2009, compared with
$1.1 million for the three months ended March 31, 2008. This was primarily
attributable to the deterioration of gross profit and the increase in operating
expenses. Net income for the three months ended March 31, 2009 also included
$0.4 million of subsidy income from the government.
18
Foreign Currency Translation Adjustments:
Foreign currency translation adjustments for the three months ended March 31,
2009 were ($0.03) million, a decrease of $0.24 million or 112.2% compared to the
amount for the three months ended March 31, 2008. The decrease was primarily due
to the stronger US dollar against the Yuan during the three months ended March
31, 2009. As of March 31, 2009 and December 31, 2008, the exchange rate was 6.83
and 6.82 RMB per US Dollar, respectively.
Six Months Ended March 31, 2009 Compared to Six Months Ended March 31, 2008
The following table sets forth for the periods indicated the statement of
operations and each category as a percentage of net sales.
Six Months Ended March 31,
-------------------------------------------
2009 % of 2008 % of % of
sales sales change
------------ ----- ------------ ----- ----
Net sales $ 15,163,842 100.0% $ 9,318,958 100.0% 62.7%
Cost of goods sold 8,383,386 55.3% 5,720,074 61.4% 46.6%
------------ ------------
Gross profit 6,780,456 44.7% 3,598,884 38.6% 88.4%
------------ ------------
Operating expenses:
Distribution expenses 3,225,004 21.3% 1,610,320 17.3% 100.3%
General and administrative expenses 725,899 4.8% 344,753 3.7% 110.6%
Depreciation and amortization expenses 132,709 0.9% 19,219 0.2% 590.5%
------------ ------------
Total operating expenses 4,083,612 26.9% 1,974,293 21.2% 106.8%
------------ ------------
Operating income 2,696,844 17.8% 1,624,592 17.4% 66.0%
Subsidy income 438,730 2.9% 94,187 1.0% 365.8%
Other (expenses) income (65,805) -0.4% 11,356 0.1% -679.9%
------------ ------------
Income before income taxes 3,069,724 20.2% 1,730,135 18.6% 77.4%
Provision for income taxes -- 0.0% -- 0.0% n/a
------------ ------------
Net income 3,069,724 20.2% 1,730,135 18.6% 77.4%
------------ ------------
Other comprehensive income:
Foreign currency translation
adjustment (65,554) -0.4% 320,874 3.4% -120.4%
------------ ------------
Comprehensive income $ 3,004,170 19.8% $ 2,051,009 22.0% 46.5%
============ ============
19
Net Sales:
Net sales for the six months ended March 31, 2009 were $15.2 million, an
increase of approximately $5.8 million or 62.7% compared to net sales for the
six months ended March 31, 2008. This increase was primarily driven by volume
growth, with the average selling price remaining flat over both periods. The
increase was also attributed to the launch of Healthy Elderly in October 2008.
Sales for Healthy Elderly were approximately $3.0 million in the six months
ended March 31, 2009.
Gross Profit:
Our gross profit increased approximately $3.2 million for the six months ended
March 31, 2009, up 88.4% compared to the gross profit for the six months ended
March 31, 2008. The overall gross profit margin had improved from 38.6% in 2008
to 44.7% in 2009.
The improvement of gross profit margin was mainly driven by the shift from
low-margin products (Whole Milk Powder Formula) to high-margin products (Healthy
Elderly) over these periods. Sales from Whole Milk Powder Formula were 30.5% of
total sales in the six months ended March 31, 2009 compared to 39.2% in the six
months ended March 31, 2008. The launch of the Healthy Elderly product line
achieved sales of $3.0 million in the six months ended March 31, 2009, equaling
19.7% of total sales during that period. The gross profit margin for Healthy
Elderly was 53.1% for the six months ended March 31, 2009. The overall
improvement of gross profit margin was also attributable to the improvement of
gross profit margin for our Baby/Infant Formula product line. The Baby/Infant
Formula gross profit margin increased from 45.4% to 60.4%, primarily driven by a
different product mix over these periods.
Operating expenses:
Operating expenses for the six months ended March 31, 2009 were $4.1 million, an
increase of approximately $2.1 million or 106.8% compared to the six months
ended March 31, 2008. Operating expenses as a percentage of net sales increased
from 21.2% in 2008 to 26.9% in 2009.
Distribution expenses increased approximately $1.6 million, up 100.3% for the
six months ended March 31, 2009, compared with the figure for the six months
ended March 31, 2008. The increase was mainly due to an increase of $1.2 million
in distributor rebates as a result of sales increases and market expansion. The
increase was also attributed to an increase of $0.1 million in freight costs.
General and administrative expenses increased by $0.38 million, or approximately
110.6%, from $0.34 million for the six months ended March 31, 2008 to $0.73
million for the six months ended March 31, 2009. The increase was primarily due
to $0.27 million of incremental expenses incurred by Mega, Harbin Mega Profit
Management Consulting Co., Ltd. and Mega Agriculture. The increase was also
attributed to an increase of $0.12 million in advertising costs, an increase of
$0.01 million in rent due to the new Beijing sales office, and an increase of
$0.01 million in professional fees related to being a public company in the U.S,
partially offset by a decrease of $0.01 million in freight.
Depreciation and amortization expenses increased by $0.11 million from $0.02
million in the six months ended March 31, 2008 to $0.13 million in the six
months ended March 31, 2009. Depreciation expenses increased by $0.08 million,
primarily due to building improvements at our Qinggang production facilities and
the purchase of equipment to support our sales growth. In the six months ended
March 31, 2009, there were approximately $0.04 million of amortization expenses
associated with the intangible assets acquired in fiscal year 2008. There were
no amortization expenses in the six months ended March 31, 2008.
20
Overall, increase in operating expenses was less than the increase in net sales.
We realized a 66.0% increase (approximately $1.1 million) in income from
operations in the six months ended March 31, 2009 compared with the six months
ended March 31, 2008.
Net Income:
We achieved $3.1 million of net income for the six months ended March 31, 2009,
an increase of $1.3 million (approximately 77.4%) compared with $1.7 million for
the six months ended March 31, 2008. This increase in net income was mainly
attributable to the increase in sales, partially offset by an increase in cost
of goods sold and operating expenses. This increase in net income was also
attributable to an increase of $0.35 million (approximately 365.8%) of subsidy
income from the government, from $0.09 million for the six months ended March
31, 2008 to $0.44 million for the six months ended March 31, 2009.
Foreign Currency Translation Adjustments:
Foreign currency translation adjustments for the six months ended March 31, 2009
were ($0.1) million, a decrease of $0.4 million or 120.4% compared to the amount
for the three months ended March 31, 2008. The decrease was primarily due to the
stronger US dollar against the Yuan during the six months ended March 31, 2009.
As of March 31, 2009 and September 30, 2008, the exchange rate was 6.83 and 6.79
RMB per US Dollar, respectively.;
Loans To Related Parties:
In January 2009, the Company loaned RMB 8.1 million (approximately US$1.2
million) to two of its principal shareholders ("Borrowers"). Subsequently, the
Borrowers invested the funds borrowed from the Company in Mega Agriculture and
as a result, Mega Agriculture is no longer a subsidiary of Harbin Mega Profit.
The Borrowers pledged to the Company their interest in Mega Agriculture. The
transaction was made in order for the Company to obtain government tax
incentives in the wake of the powered-milk contamination scandal in China. The
loans bear an interest rate of 5% per annum. Both the principal and interest are
due on January 4, 2011. The Company accrued a total interest of $0.01 million as
of March 31, 2009.
Liquidity and Capital Resources
The following table summarizes the cash flows for the six months ended March 31,
2009 and 2008.
Six Months Ended March 31,
2009 2008
----------- -----------
Net cash used in operating activities (76,224) (152,399)
----------- -----------
Net cash used in investing activities (3,830,326) (970,528)
----------- -----------
Net cash provided by financing activities 4,155,932 1,132,389
----------- -----------
Effect of exchange rate changes on cash and cash
equivalents (4,051) 310,406
----------- -----------
Net increase in cash and cash equivalents 245,330 319,867
Cash and cash equivalents, beginning of period 659,030 33,302
----------- -----------
Cash and cash equivalents, end of period $ 904,360 $ 353,169
=========== ===========
21
Our cash balance increased by $0.2 million to $0.9 million at March 31, 2008, as
compared to $0.7 million at September 30, 2008. The increase was mainly
attributable to net cash provided by financing activities of $4.2 million, being
offset by net cash used in investing activities of $3.8 million and net cash
used in operating activities of $0.1 million in the six months ended March 31,
2009.
Net Cash Used in Operating Activities
For the six months ended March 31, 2009, we used approximately $0.1 million in
operating activities, compared with $0.2 million used in operating activities
for the six months ended March 31, 2008. The decrease in net cash flows used in
operating activities was attributable primarily to the increase in net income of
$1.3 million, a decrease in inventory of $0.5 million and a decrease in accrued
expenses of $0.3 million, offset by a decrease in accounts payable and other
payable of $1.1 million and a decrease in advances from customers of $1.1
million.
Net Cash Used in Investing Activities
For the six months ended March 31, 2009, we used $3.8 million in investing
activities, compared with $1.0 million used in investing activities for the six
months ended March 31, 2008. This increase was primarily due to $2.6 million of
deposits on land and equipment in connection with the construction of Mega
Agriculture's new dairy farms, as well as $1.2 million of loans to related
parties. In January 2009, the Company loaned $1.2 million to two of its
principal shareholders. The shareholders subsequently invested the funds
borrowed in Mega Agriculture as discussed above under the caption "Loans to
Related Parties".
Net Cash Provided By Financing Activities
For the six months ended March 31, 2009, approximately $4.2 million was provided
by financing activities, compared with approximately $1.1 million provided by
financing activities for the six months ended March 31, 2008. This increase in
net cash from financing activities was primarily due to the receipt of a $3.0
million investment associated with an investment agreement that Mega entered
into with an investor on September 30, 2008 and received in October 2009 and due
to $1.2 million of additional capital contribution from our shareholders. The
$1.2 million was invested by two of the Company's principal shareholders in Mega
Agriculture on behalf of the Company. The Company loaned $1.2 million to these
principal shareholders and the shareholders pledged the equity interest in Mega
Agriculture to the Company as discussed above under the caption "Loans to
Related Parties".
Outlook
Over the next twelve months, we intend to pursue our primary objective of
increasing market share, building Mega Agriculture's dairy farm and improving
raw milk resources. We believe that we have sufficient funds to operate our
existing business for the next twelve months. However, in addition to funds
available from operations, we may need external sources of capital for our
expansion. There can be no assurance that we will be able to obtain such
additional financing at acceptable terms to us, or at all.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
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Item 4T. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures - We maintain a system of
disclosure controls and procedures that are designed for the purposes of
ensuring that information required to be disclosed in our SEC reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer ("CEO")
and our Chief Financial Officer ("CFO"), as appropriate to allow timely
decisions regarding required disclosures.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our CEO and our
CFO (our principal executive officer and principal financial officer,
respectively), of the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended) as of March 31, 2009. Based on that evaluation, our CEO and
CFO concluded that our disclosure controls and procedures are effective as of
March 31, 2009.
Changes in Internal Control Over Financial Reporting - There has been no change
in our internal control over financial reporting during the second quarter of
fiscal year 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 5. Other Information.
On May 12, 2009, we issued 12,976,316 shares of common stock to all shareholders
of our convertible preferred stock at a 1:1 ratio conversion for all outstanding
shares of preferred stock. In addition, we issued 604,833 shares of our common
stock to holders of convertible notes that have been converted.
This issuance was deemed exempt under Section 3(a)(9) of the Securities Act of
1933.
Item 6. Exhibits.
No. Description
- ---- --------------------------------------------------------------------
3.1* Composite copy of the Amended and Restated Articles of Incorporation
of the Company, as amended on April 2, 2009.
3.2* Composite copy of the Amended and Restated Articles of Incorporation
of the Company, as amended on April 2, 2009 (marked).
4.1* Form of Common Stock Purchase Warrant
31.1* Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2* Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350
32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350
*Filed herewith.
**Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rodobo International, Inc.
By: /s/ Yanbin Wang
---------------------------
Yanbin Wang
Chief Executive Officer
(Principal Executive Officer)
Dated: May 15, 2009
By: /s/ Xiuzhen Qiao
---------------------------
Xiuzhen Qiao
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 15, 2009
25